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Learn Forex Trading
The word “forex” is a contraction of the words “foreign exchange”; it is sometimes abbreviated further, and simply called “FX”. Forex provides opportunities for speculation, and that is likely what stimulated your curiosity.
Forex is simply the trading of currencies. In its broadest sense, forex includes all commercial and speculative buying and selling of all the world’s currencies, making it the largest market in the world. In a forex trade, one currency is purchased while another currency is simultaneously sold; in other words, one currency is exchanged for the one being bought. The term forex properly refers to all currency trading done anywhere in the world; however, in practice, and in the context of this website, the word is often used to refer specifically to the trading of currencies by speculators.
Forex trading has become quite popular in the last decade. Everybody wants to make money but is that so easy? The answer is no. One should have a profound knowledge of how the market functions, before going live with real money.
Trading is Risky
First thing you need to know is that Forex trading can be risky. This is because the use of leverage. Normally the deals are executed in volumes such as thousands of US dollars which makes it impossible for small traders to participate.
That is why, forex brokers have introduced leverage in order to make the market accessible to everyone. The leverage allows you to open a position with a fraction of the cost needed. For example, 100:1 will allow you to buy 10’000 EUR/USD with just $100 available in your account. The gains are real but so are the losses, so be careful. If the price moves too fast you are taken out of the market.
Opening an account
Today, trading in foreign currencies by speculators usually takes place through a forex broker or dealer, who provides the trading platform to transact forex trades. Such trades occur in currency pairs, such as USD/JPY (United States Dollars/Japanese Yen). Note that two currencies are always involved in a forex trade, with one being purchased while the other is being sold.
The forex trader will generally hold the purchased currency (called a position) for a period of time, intending to profit when the prices of the two currencies change favorably. The transaction is completed, or the position is closed, when the opposite currency is bought and the other sold. Profit is calculated by the difference in the buying and selling price.
Forex Trading DOs and DONTs
Forex Trading DOs and DONTs
Trading the markets may look easy but there are some rules to obey. In fact having the disscipline is way more important that anything else, so creating your rules ad follow them is crucial. In this article I will try to emphasize on some important matters which will help you avoid common mistakes.
Like almost any other business model, successful Forex trading can be distilled to a few simple principles. Think of the likes of ‘buy low, sell high’ or ‘pile it high, sell it cheap’, business ‘plans’ which have earned some people lots of money, but which are much more complex to apply in the real world than they appear when set down in black and white. After all, if they weren’t, then there’d be a lot more millionaires around.
DO practice on a simulator before risking any actual money. There’s always a chance that you might try working with the Forex market and decide it’s not really your thing, or that the evidence in front of your eyes (you’ve just lost a lot of simulated money) is warning you to keep your wallet firmly in your pocket. At the very least, you’ll get a feel for whether the Forex learning curve is one you’re going to be able to climb.
DON’T let emotions trade your judgement when deciding whether or not to make a trade. Every transaction has to be based on thought, analysis and research, rather than a ‘hunch’ or feeling. If your instinct tells you to make a trade, do the research needed to back up this decision, and if the research doesn’t back it up, tell your instinct to stick to picking your lottery numbers.
DON’T expect instant results. Forex trading is a long game in most cases and doesn’t lead to instant gratification. If impatience tends to lead you to act impulsively, then Forex trading may be the wrong choice, at least until you learn to curb any tendency to rush things.
DO learn the difficult stuff. You’ve probably watched lots of news footage of traders shouting at each other, slamming down phones then quaffing champagne to toast their amazing financial gains. Success in the Forex market involves learning how to do things like study and interpret a currency pairs charts which, to begin with at first, will feel very much like that other thing you do. You know, work.
1. DO understand how leverage works prior to entering the markets. It is a great tool because it allows you to take positions much bigger than the availability in your account, but it can be a double edged sword. As easy you make money you can lose. So make sure you check you broker leverage, margin calls policy to know better when you will be taken out of the market.